Chapter 1 Marketing: Creating and Capturing Customer Value

Chapter 1Marketing:

Creating and Capturing Customer Value

Marketingand Customer Value

ZAPPOS

Web retailer Zappos is flat out obsessed with creating customer satisfaction and relationships. At Zappos, taking good care of customers starts with a deep-down, customer-focused culture. The company’s number-one core value: Deliver WOW through service! This WOW philosophy permeates the entire organization. The Zappos Web site proclaims, “We are a service company that just happens to sell [shoes, or handbags, or clothing, or, eventually, anything and everything].” In fact, Zappos takes almost all the money that a company of its size would normally spend on mass-media advertising and invests it directly into customer service. Zappos hires only customer-oriented employees who fit the Zappos culture and then trains them thoroughly in the art of building customer loyalty. In the words of Zappos CEO Tony Hsieh (pronounced “shay”), “Our whole goal at Zappos is for the Zappos brand to be about the very best customer service and customer experience.” Zappos has become the poster child for this new age of customer-focused companies. The result? Zappos is growing astronomically. More than 75 percent of Zappos sales come from repeat customers. And despite a crippling retail economy, sales have continued to soar in recent years.

Zappos: A Passion for Creating Customer Value and Relationships

• How has what we are seeing at this site contributed to Zappos’ performance? Has Zappos been successful? Why?

Discussion Questions

In this chapter, we introduce the basic concepts of marketing. It starts with the question, “What is marketing”? Simply put, marketing is managing profitable customer relationships. The aim of marketing is to create value for customers and to capture value from customers in return. Next, the five steps in the marketing process are discussed—from understanding customer needs, to designing customer-driven marketing strategies and integrated marketing programs, to building customer relationships and capturing value for the firm. Finally, there is a discussion of the major trends and forces affecting marketing in this age of customer relationships.

CHAPTER OVERVIEW

Creating and Capturing Customer Value

• What Is Marketing?• Understand the Marketplace and Customer Needs• Designing a Customer-Driven Marketing Strategy• Preparing an Integrated Marketing Plan and Program• Building Customer Relationships• Capturing Value from Customers• The Changing Marketing Landscape

Topic Outline

What Is Marketing?

Marketing is a process by which companies create value for customers and build strong customer relationships to capture value from customers in return

What Is Marketing?

The Marketing Process:

I. Understanding the Marketplaceand Customer Needs

• States of deprivation• Physical—food, clothing, warmth, safety• Social—belonging and affection• Individual—knowledge and self-expression

Needs

• Form that needs take as they are shaped by culture and individual personalityWants

• Wants backed by buying powerDemands

Customer Needs, Wants, and Demands

Understanding the Marketplaceand Customer Needs

• Market offerings are some combination of products, services, information, or experiences offered to a market to satisfy a need or want

• Marketing myopia is focusing only on existing wants and losing sight of underlying consumer needs

Understanding the Marketplaceand Customer Needs

Customer Value and SatisfactionExpectations

Customers• Value and

satisfaction

Marketers• Set the right level of

expectations• Not too high or low

Exchange is the act of obtaining a desired object from someone by offering something in return

Understanding the Marketplaceand Customer Needs

Understanding the Marketplaceand Customer Needs

Markets are the set of actual and potential buyers of a product

II. Designing a Customer-Driven Marketing Strategy

Marketing management is the art and science of choosing target markets and building profitable relationships with them– What customers will we serve?– How can we best serve these customers?

Designing a Customer-Driven Marketing Strategy

Market segmentation refers to dividing the markets into segments of customers

Target marketing refers to which segments to go after

Selecting Customers to Serve

Designing a Customer-Driven Marketing Strategy

Choosing a Value Proposition

Value proposition Set of benefits or values a company promises to deliver to customers to satisfy their needs

Designing a Customer-Driven Marketing Strategy

Production concept

Product concept

Selling concept

Marketing concept

Societal concept

Marketing Management Orientations

Designing a Customer-Driven Marketing Strategy

Production concept is the idea that consumers will favor products that are available or highly affordable

Marketing Management Orientations

Designing a Customer-Driven Marketing Strategy

Product concept is the idea that consumers will favor products that offer the most quality, performance, and features. Organization should therefore devote its energy to making continuous product improvements.

Marketing Management Orientations

Designing a Customer-Driven Marketing Strategy

Selling concept is the idea that consumers will not buy enough of the firm’s products unless it undertakes a large scale selling and promotion effort

Marketing Management Orientations

Designing a Customer-Driven Marketing Strategy

Marketing Management Orientations

Marketing concept is the idea that achieving organizational goals depends on knowing the needs and wants of the target markets and delivering the desired satisfactions better than competitors do

Designing a Customer-Driven Marketing Strategy

Marketing Management Orientations

Societal marketing concept is the idea that a company should make good marketing decisions by considering consumers’ wants, the company’s requirements, consumers’ long-term interests, and society’s long-run interests

Designing a Customer-Driven Marketing Strategy

The marketing mix: set of tools (four Ps) the firm uses to implement its marketing strategy. It includes product, price, promotion, and place.

Integrated marketing program: comprehensive plan that communicates and delivers the intended value to chosen customers.

III. Preparing an Integrated Marketing Plan and Program

IV. Building Customer Relationships

• The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction

Customer Relationship Management (CRM)

1.1 Vipp Rubbish Bin

Building Customer RelationshipsRelationship Building Blocks: Customer Value

and Satisfaction

Customer- perceived value• The difference

between total customer value and total customer cost

Customer satisfaction

• The extent to which a product’s perceived performance matches a buyer’s expectations

Building Customer RelationshipsCustomer Relationship Levels and Tools

Basic Relationships

Full Partnerships

Basic Relationship sare often used by a company with many low-margin customers . For example, Procter & Gamble does not phone or call on all of its Tide consumers to get to know them personally. Instead, P&G creates relationships through brand-building advertising, sales promotions, and its Tide Fabric Care Network Web site (www.Tide.com). Full Partnerships are used in markets

with few customers and high margins, sellers want to create full partnerships with key customers. For example, P&G customer teams work closely with Wal-Mart, Safeway, and other large retailers.

Building Customer Relationships

• Relating with more carefully selected customers uses selective relationship management to target fewer, more profitable customers

• Relating more deeply and interactively by incorporating more interactive two way relationships through blogs, Websites, online communities and social networks

The Changing Nature of Customer Relationships

Building Customer Relationships

Customer-managed relationshipsMarketing relationships in whichcustomers, empowered by today’s newdigital technologies, interact withcompanies and with each other to shapetheir relationships with brands.

The Changing Nature of Customer Relationships

Partner relationship management involves working closely with partners in other company departments and outside the company to jointly bring greater value to customers

Building Customer Relationships

Building Customer Relationships

• Partners inside the company is every function area interacting with customers– Electronically– Cross-functional teams

• Partners outside the company is how marketers connect with their suppliers, channel partners, and competitors by developing partnerships

Partner Relationship Management

Building Customer Relationships

• Supply chain is a channel that stretches from raw materials to components to final products to final buyers

• Supply chain management

Partner Relationship Management

V. Capturing Value from Customers

• Customer lifetime value is the value of the entire stream of purchases that the customer wouldmake over a lifetime of patronage

Creating Customer Loyalty and Retention

Capturing Value from Customers

Share of customer is the portion of the customer’s purchasing that a company gets in its product categories

Growing Share of Customer

Capturing Value from Customers

Customer equity (客戶資產 ) is the total combined customer lifetime values of all of the company’s customers

Capturing Value from Customers

• Right relationships with the right customers involves treating customers as assets that need to be managed and maximized

• Different types of customers require different relationship management strategies

Building Customer Equity

VI. The Changing Marketing Landscape

Uncertain Economic Environment• New consumer frugality • Marketers focus on value for the customer

Target focus changes to the ‘pay less’ part of the slogan, adjusting prices to compete with WalMart.

Discussion Questions (p. 35)1.2 An Era of Austerity (Simple)

The Changing Marketing Landscape

Digital Age

• People are connected continuously to people and information worldwide

• Marketers have great new tools to communicate with customers

• Internet + mobile communication devices creates environment for online marketing

The Changing Marketing Landscape

• Rapid Globalization• Sustainable Marketing• Not-for-Profit Marketing

VII. What Is Marketing? Pulling It All Together

Company Case: Pegasus Airlines

Pegasus Airlines is a relative newcomer to the up and coming Turkish flight market. Operating out of a secondary airport near Istanbul may have appeared to be a distinct disadvantage, but the airline has turned this to its advantage by surpassing average on-time departure times. In addition to this, the airline has sought to differentiate itself from the conventional airlines by adopting many of the features of budget airlines operating throughout Europe. By positioning themselves as a low-cost carrier, the airline has been able to achieve sustained growth even in times of economic uncertainty. The primary focus of the airline is customer service, by putting this aspect of their operations front and center, they have avoided many of the difficulties that other airlines have faced with dropping passenger numbers. By running a series of incentive schemes, linked to improved and sustained high customer service levels, Pegasus has a strong relationship with its customers. The airline has also made extensive use of social networking sites, rewarding customers for participation and feedback. By combining low fare with excellent customer service, Pegasus has shown that it can generate steady profits. In ensuring that it caters for the exact needs of customers it has become a powerful player in the emerging Turkish airline market.

Pegasus Airlines: Delighting a New Type of Traveling Customer

1. Give examples of needs, wants, and demands that Pegasus customers demonstrate, differentiating these three concepts. What are the implications of each for Pegasus’s practices?

2. Describe in detail all the facets of Pegasus’s product. What is being exchanged in a Pegasus transaction?

3. Which of the five marketing management concepts best applies to Pegasus?

4. What value does Pegasus create for its customers? 5. Is Pegasus likely to continue being successful in building

customer relationships? Why or why not?

Discussion Questions